A budget is a tool used by individuals/households of all income levels to manage money. It can help you control where your money goes, set goals and feel more confident about your financial future.
The first step to creating a budget is to gather all of your financial information. Start with your income and figure out how much you bring home each month (also known as net income). This includes wages, salaries, tips, Social Security payments, investment income, and any other sources of money coming in. Next, calculate all of your expenses. This may take some time and patience to find out exactly how much you are spending each month, but the more detailed you can be, the better. You can use a free budgeting app, spreadsheet, or even just a notebook and pen to track your spending. Some apps and software also connect to your bank accounts and credit cards to automatically track expenses for you.
One popular budgeting model is 50/30/20, which recommends allocating 50% of your income to necessary expenses like rent or mortgage, 30% to desired expenses like dining out and travel, and 20% to savings or debt repayment. This is a good place to start, but you can adjust the percentages to meet your needs.
Another way to approach budgeting is with a “pay yourself first” mindset, which prioritizes saving and investing over other expenses. This method is good for people who want to avoid living paycheck to paycheck and save for the long term.